Traditional Development Is a Municipal Gold Mine

In the United States, cities have spent the past 60 years reconfiguring public spaces to be oriented around the automobile. When new places are built, regulations require that they be similarly designed. The largely unchallenged assumption behind this approach, especially when it comes to commercial property, is that the more cars driving by, the more successful a place will be. Is this true?

If we look at it from the perspective of a local government, that assumption becomes highly suspect. Auto-oriented development costs more to maintain and provide service to than walkable alternatives. At the extreme, Detroit’s fiscal problems are a symptom of having too much stuff–too many miles of streets, pipes, curbs, and walks–and not enough people. If the city were half its current size but had the same population and tax base, its financial problems would be much more manageable. That is intuitively obvious.

It is the other side of the equation–a city’s revenues–where things are not as clear. Cities seek the Wal-Mart out on the edge of town not because it is cheap and efficient to provide services to–it clearly is not–but because they believe it produces such great returns, such tremendous wealth for the community. Wal-Mart pays a lot of taxes. What city wouldn’t want that?

Such a simple thought process does great injustice to our cities and the taxpayers forced to support their operations. It isn’t raw size that matters but productivity: how much revenue is produced per increment of cost? In that prism, the auto-oriented approach to building fails miserably.

Highway 210 runs east/west through the downtown of Brainerd, Minnesota, my home town. This used to be the streetcar route in a different age, but the hope of progress along with federal transportation subsidies prompted us to abandon that line years ago. The highway abuts a traditional neighborhood that has since struggled. In particular, along the highway were three commercial blocks built in the traditional style, with the single-story buildings pulled up to the street presenting a dilapidated front to the passing traffic. It is one of the most unpleasant stretches of development within the city.

In an effort to clean up this part of town, the local government planned for the redevelopment of this section into something they identified as “auto oriented.” In recent years they have been able to convert one of the blocks entirely, replacing the blight with a brand new drive through restaurant. The new facility has two lanes, a large parking lot, a fancy sign, and a shiny façade. Locally, the belief that this is an improvement is a fairly universal one.

Unfortunately, the math doesn’t justify that belief. The new taco joint has a total value of $618,500. Two blocks over, using the same amount of land and having the same amount of public infrastructure, the collection of old and blighted structures has a total value of $1,104,500. The block the city is trying to have torn down is, in its dilapidated state, providing them 79 percent more tax base and property tax revenue than its shiny, new, auto-oriented replacement.

How is this possible? How is it that a collection of tiny shacks built nearly a century ago are worth so much more than the brand new development on the same acreage just up the street? The answer is revealed over and over and over and over and over again when one looks at the financial productivity of different land use patterns: the traditional development approach is a cash cow. On a per-foot or per-acre basis, it is vastly more productive financially than anything being built in an auto-orientation. Taxpayers get far greater returns when places are scaled to people instead of cars.

There are a lot of implications to this insight and a lot of areas to explore as a result–including sales tax and job creation, both of which also come out ahead in traditional approaches–but there is one thing that must be clearly understood: recreating that old and blighted block and all of its financial productivity is illegal today. The local zoning codes, which–mandated or inspired by state and federal guidelines–require setbacks, coverage limits, greenspace, excessive parking and minimum floor/area ratios, prohibit building in the time-tested, traditional building pattern. Even if people wanted to build something that was more financially productive–and many people do–it can’t be done.

Through regulations that reinforce false notions on how wealth is created, American cities have mandated their own financial demise. The first step to turning things around is to remove barriers that prevent incremental development in the traditional style. Any local government serious about their community’s future prosperity is taking this inexpensive step in earnest.

All well and good. But I find the documentation pertaining to the tax actually paid on the dilapidated buildings to be a little skimpy. OK, the buildings are assessed at such and such value, and the property tax that should be paid on them is proportional to that, but, if the buildings really are dilapidated, which, to me, suggests that they are either empty or underutilized, are the owners actually paying the assessed property taxes on those buildings? It seems pretty clear that the owners of the taco joint are paying their taxes, even if they are less, on paper, than what traditional buildings would bring in.

I would also point out that it is a little odd to expect one business to pay the same amount in taxes as several buildings. Sure, the area taken up might be the same, but the notion is that the on site parking will attract customers who would not want to park on the street or not be able to. The taco joint appears to be on a busy highway, and, the theory at least, seems to be that folks driving by will patronize the restaurant, as opposed to the foot traffic and locals that old school storefronts with no attached parking would have to rely on. And that a taco joint making a go of it will employ local residents, while dilapidated buildings probably employ nobody. And that is true even if the land is assessed at higher values for the dilapidated buildings.

Shut up! Shut up! We refuse to be stacked like pancakes so just shut up and stop trying to force us to live in a pancake stack! (Nobody had said this yet, and it has to be said in response to all your posts, right?)

“Each one of those half dozen dilapidated storefronts is a low risk opportunity for someone to start their own business; Maybe some kid who know how to balance a bank account and rolls a mean burrito.”

But who is going to front that kid the startup capital he needs to get started? Chase? Goldman Sachs? Donald Trump? Don’t make me laugh.

Then, let’s say there is still some local bank willing to invest in a small startup. And let’s say the business does become successful. How long will it be until the landlord responds by jacking up the rent to a level where the business is no longer profitable?

Zoning regulations are an easy target, but they are only half of the problem.

Auto-oriented zoning has further damaged mid-sized cities that fell on hard times after their leading industries bottomed out, like Cleveland. For that mismanaged and perpetual joke of a town, the proposed turnaround for the last 30 years has been the construction of isolated stadiums, convention centers, and entertainment districts. The blocks and neighborhoods surrounding these projects are ignored while a succession of nepotistic, half-assed “leaders” promise that mythical good-hearted businessmen will arrive to plug in the holes with new restaurants and housing. It never happens; it never will. Anyone who has been to that city’s Rock n’ Roll museum or baseball stadium knows what I’m talking about — lovely facilities with a lot of promise surrounded by parking garages, fences, rubble, decrepit storefronts…Rather than emphasize destinations, our failing cities need to fix up what lies between them. As for Cleveland, those losers might want to deemphasize their obsession with sociopathic basketball players and perhaps educate their young. But I digress. Great reporting, guys.

Mr. Marohn makes a fair point that on the street in Brainerd, the traditional development is far more valuable to the city government than the Taco John’s. However, that is not likely to be the private developer’s view. Personally, I love traditional development patterns and I think that re-learning them is critical to the future of American municipalities. However, I would not build a traditional development on that road. It’s already been ruined for traditional development by the forces Marhon mentions(zoning & transport subsidies). It’s nothing like the street in the stock photo at the top of the article. As a developer, I want to build something that would be demanded for profitable rents by potential tenants. I don’t know financial detail on Brainerd properties, but I speculate that I could earn a much higher return on investment from building something more like Taco John’s. In an area without sufficient density, the auto-oriented business will generate higher returns.

Now what can we do to reverse this situation? I think that repealing the sorts of zoning Marhon mentions is an important step, but in the short or medium term, this will only seriously affect areas that are approaching some threshold density yet held back by zoning. For developers and municipalities, this is the “gold mine,” but the gold mine is restricted to relatively few areas. Changing the zoning cannot do much for the many “stroads” (to use a Strong Towns term) in towns across the country. These are just too far gone. The demand in these places is for auto-oriented development. Almost no one with a choice will walk down a stroad to the traditional development, but they will drive. The developer, beholden to discounted future cash flows, will be better off building the thing that is worse for the community, in the long run.

On the other hand, pseudo-traditional “lifestyle centers” actually seem to do very well even in the heart of suburbia (e.g. St. Johns Town Center in the suburban part of Jacksonville, Zona Rosa in the suburban part of Kansas City, Reston in the Washington DC suburbs).

My knees have have given out, and my wife is wheelchair bound.
Walkable “Zones” are torture to us both.
Without our car we are stuck.
So, the “old, traditional” places are not our favorite places to be.
I’d rather Taco Johns, than the ‘walkable’ storefronts you desire.

Philadelphialawyer, I think you’re missing the rhetorical point here. The idea is that even a terrible-looking, run-down strip of check cashing places, maybe an insurance agent or two and a corner store is more profitable to a city than a shiny new drive thru. Those are extremes.

All along the middle are barbershops, small retail stores, neighborhood groceries, restaurants, bakeries, etc. There are also fast-food joints that constantly turn over, low-rent, run-down car oriented development and even abandoned buildings reverted back to parking lots.

While it may be more likely that one of the storefronts falls behind on taxes, the diversified pattern of development means that a city can count on revenue from the storefronts all the time, while a Taco John’s or Subway or Church’s or whatever is a win/lose proposition. That is, if the franchise owner closes that drive-thru, now that block was taken down for no reason at all, and the only thing left is a blighted, cheaply built building waiting for replacement.

Lastly, what makes you think that five businesses occupying the space of one would do less business in monetary terms or employ fewer people? It seems pretty unlikely that an entire block of storefronts would “employ nobody”, while a Taco John’s would employ local residents, and (this is implied) at a livable wage that would allow them to pay for their car to drive to work.

“But who is going to front that kid the startup capital he needs to get started? Chase? Goldman Sachs? Donald Trump? Don’t make me laugh.

Then, let’s say there is still some local bank willing to invest in a small startup. And let’s say the business does become successful. How long will it be until the landlord responds by jacking up the rent to a level where the business is no longer profitable?

Zoning regulations are an easy target, but they are only half of the problem.”

So you’re arguing that entrepreneurship is pointless? Or that we should have rent controls?

I appreciate Chuck Marohn, Jonathan Coppage, and the New Urbs for continuing to bring attention to this topic – specifically, good urban design and locally sustainable economic development.

It’s a topic that ranks up there as one of the most under-discussed, under-recognized, and potentially most bi-partisan political issues in the land. Our places and the way that they interface with our people should be of great interest to our leaders, but sadly this hasn’t been the case.

The fiscal unsustainability of our current patterns of growth and development should naturally appeal to conservative sensibilities. But the political right has largely drifted away from this type of conservatism (conservation of financial, human, and natural resources).

Meanwhile, the political left has either ignored the issue, paid it superficial lip-service, or has gone about addressing it in typical tone-deaf fashion, failing to engage the imaginations, hopes, fears, and aspirations of everyday people.

It’s an existentially important issue for many of our cities and towns, and I’m glad that it is being addressed here.

On a substantive note, I couldn’t agree more that our places need to be re- (or de-) zoned, but we are going to have to find a workable model for doing this on a regional or multi-jurisdictional basis.

Under the status-quo, if one community decides to rezone for dense, traditional development and adopt high standards for aesthetically appealing, traditional urban design – in many cases, businesses will simply move to the community next-door that allows them to build cartoonish, ugly buildings with no re-use potential surrounded by a sea of parking.

In the past 30 years, the communities that have gotten away with adopting a traditional development standard are primarily very affluent places that are attractively lucrative enough that developers are willing to play-ball and locate in them.

But whither the non-affluent communities which need traditional place making more than anyone? Most of them are so desperate for economic development, that they’ll do anything for it.

Marohn and the New Urbs are doing an admirable job explaining diagnosing the problem. It’s going to be up to our political leaders (ultimately, in a democracy – each one of us) to decide whether we wish to resurrect the goose of traditional human-scaled development that laid the golden egg of sustainable local economic prosperity.

“So you’re arguing that entrepreneurship is pointless? Or that we should have rent controls?”

No, I am pointing out the typical libertarian blind spot that blames all problems on the government while completely ignoring the real world effects of free market capitalism. I am not arguing that entrepreneurship is pointless, I am pointing out that the rentier class are the ones stamping it out wherever they can.

The last thing that the property owner of that block of stores wants is for those stores to be successful. He wants them all to fail, so that he can knock them down and replace them with some form of high-rise that, with the help of subsidies and tax breaks from the city, will ultimately be much more profitable to him.

“Philadelphialawyer, I think you’re missing the rhetorical point here.”

No, I get the rhetorical point, but I am not convinced that the facts support it, in this instance. An instance, of course, that was picked out (one might even say, uncharitably, cherry picked) by the author.

“The idea is that even a terrible-looking, run-down strip of check cashing places, maybe an insurance agent or two and a corner store is more profitable to a city than a shiny new drive thru. Those are extremes.”

Yes, that is “the idea.” My point, though, was that the owner(s) of a strip of dilapidated buildings might not, in reality, be paying the taxes on those buildings. In which case, they may not be more profitable to the city.

“All along the middle are barbershops, small retail stores, neighborhood groceries, restaurants, bakeries, etc. There are also fast-food joints that constantly turn over, low-rent, run-down car oriented development and even abandoned buildings reverted back to parking lots.”

Sure, there is all of that. Who said there wasn’t? Again, my point is that a whole block of buildings, not “in the middle,” according to the author himself, but, instead, “dilapidated,” are not necessarily bringing in all the revenue that their assessment indicates that they should be.

“While it may be more likely that one of the storefronts falls behind on taxes, the diversified pattern of development means that a city can count on revenue from the storefronts all the time, while a Taco John’s or Subway or Church’s or whatever is a win/lose proposition.”

I find that the first part of that to be contradictory. Both kinds of development risk the non payment of taxes due to the failure of the businesses involved. OK, yes, a single development does mean putting more eggs in one basket. But, then again, I take it the city authorities understand that, and have taken the step of allowing a combination of smaller lots, with one building and on site parking, for the reason that they think that this one business probably can survive, and perhaps even thrive, and at least bring in some revenue. Whereas a block of un or under utilized store fronts may be brining in next to nothing. As well as providing fewer jobs than the taco joint.

“That is, if the franchise owner closes that drive-thru, now that block was taken down for no reason at all, and the only thing left is a blighted, cheaply built building waiting for replacement.”

Not necessarily. Another fast food franchise owner might do better. Also, fast food buildings can be converted into other kinds of businesses. And the attraction of the on site parking will remain.

“Lastly, what makes you think that five businesses occupying the space of one would do less business in monetary terms or employ fewer people?”

The fact that the author describes them as dilapidated. A business in a dilapidated storefront is unlikely to be employing many people. Fast food joints actually employ quite a few people. As well as providing a livelihood for the franchise holder.

The notion that little micro businesses (such as the “mean burrito” roller posited by one poster) eking it out in a decrepit building are some sort of panacea is a strange one. Such businesses barely (or not at all) provide a living for the owner-operator, never mind employment for others. Of course, such a business might hit it big. But, if it did hit it big, wouldn’t the owner want bigger and better digs? And, eventually, probably become another evil franchised chain? Isn’t that how most chain restaurants started?

“It seems pretty unlikely that an entire block of storefronts would ’employ nobody,’ while a Taco John’s would employ local residents, and (this is implied) at a livable wage that would allow them to pay for their car to drive to work.”

Well, first of all, local people would not have to drive to work. But, on the main issue, again, I don’t find it unlikely at all. Decrepit businesses in decrepit buildings employ few or no workers. Fast food joints do employ people. As for wages, at least the taco joint will pay the legal minimum wage, with the proper withholdings and co payments for Social Security, unemployment, etc. Many microbusinesses hire workers off the books, often at less than minimum wage, and don’t withhold for Social Security and such like either.

On the whole, I find the notion that it is primarily zoning laws holding back blighted areas to be unconvincing. The dilapidated blocks, built in the traditional way, no doubt existed for years and decades, and yet the dilapidation and blight existed anyway. The idea that if, somehow, the taco joint was torn down, and magically replaced with the pre existing run down stores, a million flowers of small scale capitalism, led by Millennial Mean Burrito Rollers, would take root, flourish, and re make the world, is a fanciful one.

Most run down cities and towns have more than enough dilapidated areas built in the traditional, city block way. The opportunity to start businesses in them already exists. The problem, rather, is that the city or town has no real industry, no real export, no real reason to exist. In the past, it might have been a mill or factory town, or an important crossroads or farm town. But now those basic identities are gone, and the town or city is instead home only to retired, working class/poor folks, or seriously impoverished folks who can’t afford to live anywhere else. The town or city produces nothing that anyone wants. Nor is it a tourist destination. Some towns and cities are lucky, in that educational, medical and governmental facilities (as in State capitol cities, and even county seats) are located there, and they provide at least some basis for a local economy. But many cities and towns are not so lucky, and merely retaining their traditional storefronts won’t help them much.

It seems to me that the comparison between the Taco John’s lot and the occupied block down the street is not the proper comparison. The comparison ought to be between what the Taco John’s lot brings as a Taco John’s, and what it would have brought had it remained in its previous state. IOW, what was the likelihood that several more businesses were going to occupy that block if the Taco John’s were not there? Who says there were any that wanted to open (or stay open) in that re-developed block? Or perhaps the city saw a bird in the hand (Taco John’s) as better than however many there were in the bush.

Secondly, maximizing city tax revenue is not necessarily an objective good, and thus is not necessarily the best measure of whether a development is optimal. I’d think that a better measure of whether something is going to work out is the willingness of actual live investors willing to make the investment.

I find this article fascinating. As I consider the ramifications of developing “parking lots” with stores off the street, it reminds me of my home town…

In my home town most of the downtown shopping and service industry was on the street. Parking was off site.

Going downtown and finding what one wanted to find (shop or service) was very simple.

Now, when I drive in my town, I have to negotiate parking lot after parking lot. From a civil engineering standpoint, large vast open spaces require retention and detention “ponds” so that the runoff change, does not cause an overall drainage issue to adjacent property.

It seems like you guys are getting hung up on the word “dilapidated.” It is just being used to mean old, non-historical, nothing-fancy, regular, small, places—particularly in comparison to the shiny new Taco John’s or a newly built version of the same thing. There are businesses in each building that are employing people and paying rent and/or taxes, it isn’t derelict.

As with so many other things, it is ultimately about having options. When local zoning prohibits the traditional building patterns in favor of the sea of parking style of development they have sealed their fate. There is a place for the auto-oriented option, but it should not be in our downtowns. Preservation of those areas for the walkable, community-centric spaces they were originally designed to be serves the needs and desires of a growing number of citizens. The economic comparison pointed out in the article comes as a surprise to many and is certainly worth knowing. Thank you for addressing it.